News: 24th June 2014

Millions of Brits face having to repay tax as a result of HMRC blunder

Millions of British workers have been faced with the possibility of repaying tax following a government error.
Mistakes by Her Majesty’s Revenue and Customs (HMRC) left an estimated 5.5 million people either under-paying or overpaying their tax through the Pay As You Earn (PAYE) system.

It’s believed that around 3.5 million people have paid too little tax and will be required to pay the money back over the coming years. Another two million are believed to have overpaid, and will now be able to claim the lost money back from the Government. Tax officials estimate that the average error is worth around £300.

The figure of 5.5 million errors is higher than the 5.2 million for the previous year, despite the recent introduction of a new £270 million scheme designed to make the tax system more accurate. The PAYE system is designed to check tax paid against tax owed at the end of the year. As a result, under or over-payments can come about through changes in financial circumstances, such as applying for additional benefits or changing jobs.

The new Real Time Information (RTI) programme allows employers to report wage changes either on a weekly or monthly basis, with the aim being to ensure tax payments are more accurate. However, the programme has received heavy criticism from accountants, who have accused the system of not working as planned.

David Heaton of Baker Tilly, said: "RTI was supposed to make PAYE more accurate, not less. So why are there more (errors) this year, with RTI in full flow, than last year, when RTI was only a pilot? The number of PAYE differences has risen, not fallen. Something in RTI is not working."

A spokesman for HMRC noted that the staged roll-out of RTI meant that a number of employers had not used the system for the whole tax year. However, he argued that early indications showed that tax processing under the system had performed ‘in line’ with expectations so far.

"The effect of Real Time Information is not reflected yet as it has not bedded in but, over time, RTI will help to reduce the number of cases that have to be reconciled." he said.